Sonkeli12 (and people affected), if you shoot a Live Photo then when viewing the photo you tap and hold on the picture (10 seconds video demonstration) do you still observe the over-smoothing effect, or instead you only see a blurry picture, as if the lens were "soft" overall (do not mistake this for out of focus!)?
Best done: shooting with camera mounted on tripod and a non-moving subject such a person standing no more than few feet away, carefully tapping the focus on the person figure.
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I am also seeing the not over-smoothing version (but still blurry/soft) when I take a photo using Continuity on my Mac (right click on desktop - import from iPhone) and well as when I setup a timer (and the result is a burst of 10 photos).
I have covered person's face for privacy in my video sample linked above (cannot attach/upload the short video here; watch it at https://imgur.com/a/jdFAqSP), but you could easily observe persons' exaggeration of hair white color, then the non-HDR but blurry version. Note if you're wondering why is a SE in the video: the Live can be played back using any older iPhone.
Editing the import/burst/different key photo versions using a third party app that can do HDR effect and sharpness/details = I get almost identical results as the Live version, therefore my conclusion the cause is SmartHDR + noise reduction.
I wish Apple would give us some control over the SmartHDR toggle like they allow it on previous generations of iPhones, as well as the noise reduction (I think that too intense noise reduction causes the blurry versions, while adding SmartHDR on top of that causes the smeared effect).
Some of us prefer the more grainy non-HDR classic photography, or at least be able to flip noise reduction and HDR individually. Not everyone can shoot ProRaw workaround which is available only on pro, and anyway shooting ProRaw is not the proper solution IMHO for a point-and-shoot pocket camera.